Quarterly / Earnings Reports | Third Quarter (3Q) Update

Comstock Talks Q3 2019 Results, Drilling

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   |    Thursday,November 07,2019

Comstock Resources, Inc. reported financial and operating results for the third quarter of 2019. On July 16, 2019, Comstock completed the acquisition of Covey Park Energy, LLC. The Company's financial results include the results of operations of Covey Park in the third quarter of 2019 beginning on July 16, 2019.

On August 14, 2018, the Company completed transactions in which entities controlled by Dallas businessman Jerry Jones contributed Bakken Shale properties to the Company in exchange for a controlling interest in the Company (the "Jones Contribution"). Results for the three months and nine months ended September 30, 2019 and the period from August 14, 2018 through September 30, 2018 reflect the Jones Contribution, while results for the period from July 1, 2018 through August 13, 2018 and the period from January 1, 2018 through August 13, 2018 (the "Predecessor") reflect the historical results of Comstock for that period. The Company's consolidated financial results are being presented with a blackline division which delineates the lack of comparability between amounts presented for these periods.

Drilling Results

Comstock reported the results to date of its 2019 Haynesville/Bossier shale drilling program. During the first nine months of 2019, Comstock spent $355.6 million on its development activities including $323.3 million to drill and complete Haynesville shale wells. Comstock drilled 46 (29.4 net) horizontal Haynesville/Bossier shale wells during the first nine months of 2019, which had an average lateral length of approximately 8,300 feet. Comstock also completed 19 (5.2 net) wells that were drilled in 2018. 22 (17.4 net) of the Haynesville shale wells drilled in the first nine months of 2019 were also completed. Comstock also spent $16.2 million drilling and completing four (2.2 net) Eagle Ford shale oil wells and an additional $16.1 million primarily on leasehold and other development activity. Comstock estimates that it will spend approximately $145.0 million in the fourth quarter of 2019 on development activities. In response to low natural gas prices, the Company plans to reduce the operating rigs that it employs in its Haynesville shale drilling program from nine operating rigs to six beginning in early 2020. Comstock presently expects its 2020 preliminary capital budget will be $475.0 million. The 2020 drilling program prioritizes free cash flow generation over production growth. The Company is anticipating its 2020 drilling program will focus exclusively on the Haynesville shale and currently expects to drill 62 (44.4 net) wells and complete 18 (10.7 net) wells drilled in 2019. The six rig drilling program will support production growth of 6% to 8% over pro forma 2019 production and will generate substantial free cash flow.

Since the last operational update, Comstock reported on 23 new Haynesville shale wells. The average initial production rate of these wells was 25 MMcf per day. The wells had completed lateral lengths ranging from 5,450 feet to 11,361 feet, with an average completed lateral length of 9,343 feet. Each well was tested at initial production rates of 19 to 32 MMcf per day.

Bolt-on Acquisition

Comstock also announced that it acquired a privately-held company with Haynesville shale properties located primarily in DeSoto Parish, Louisiana on November 1, 2019. Comstock issued 4,500,000 shares of common stock in connection with the all-stock financed acquisition. The properties acquired include approximately 3,000 net acres and 12.7 net future drilling locations. The properties acquired have 75 (20.1 net) producing wells which are producing 12 MMcfe per day. Comstock estimates that the proved oil and gas reserves attributable to the properties acquired are 89 Bcfe.

Financial Results 

For the third quarter of 2019, Comstock reported a net loss available to common stockholders of $1.3 million or $0.01 per diluted share. Net income available to common stockholders for the third quarter of 2019 was $34.3 million or $0.17 per diluted share as adjusted to exclude certain items not related to normal operating activities partly due to the closing of the Covey Park acquisition. These items, net of income taxes, include $28.7 million of transaction costs related to the Covey Park acquisition including professional fees, severance costs and other change of control payments; $2.9 million in interest amortization resulting from adjusting debt assumed in the acquisition to fair value; $3.2 million of hedging settlements related to July production that were received prior to closing; and $0.8 million in unrealized hedging gains.

Comstock produced 97.2 billion cubic feet ("Bcf") of natural gas and 603,773 barrels of oil or 100.9 billion cubic feet of natural gas equivalent ("Bcfe") in the third quarter of 2019. The Company's natural gas production averaged 1,057 million cubic feet ("MMcf") per day, an increase of 135% over the second quarter of 2019. The growth in natural gas production was primarily attributable to the Covey Park acquisition which closed on July 16, 2019. Oil production in the third quarter of 2019 averaged 6,563 barrels of oil per day. Pro forma third quarter 2019 production including the operations of Covey Park from July 1, 2019 to July 15, 2019 was 111.5 Bcfe or 1,212 MMcfe per day.

Comstock's average realized natural gas price, including hedging, was $2.26 per Mcf in the third quarter of 2019 ($2.30 including the July hedge receipts of Covey Park). The Company's average realized oil price, including hedging, was $51.27 per barrel in the third quarter of 2019. Oil and gas sales were $250.5 million (including realized hedging gains and losses) in the third quarter of 2019. Adjusted EBITDAX, or earnings before interest, taxes, depreciation, depletion, amortization, exploration expense, transaction costs and other noncash expenses, was $188.6 million in the third quarter of 2019. The Company's adjusted operating cash flow generated in the third quarter of 2019 (before working capital changes) was $143.3 million.

Financial Results for the Nine Months Ended September 30, 2019

For the first nine months of 2019, Comstock reported net income available to common stock of $33.6 million or $0.26 per diluted share. Net income available to common stockholders for the nine months ended September 30, 2019 is $71.2 million or $0.51 per diluted share as adjusted to exclude certain items not related to normal operations. These items, net of income taxes, include $30.1 million in transaction costs related to the Covey Park acquisition; $3.0 million in interest amortization related to the Covey Park debt, $3.4 million for the Covey Park July hedging settlements and $1.1 million in unrealized hedging losses.

Comstock produced 171.3 Bcf of natural gas and 2.1 million barrels of oil or 184.0 Bcfe in the first nine months of 2019. The Company's natural gas production averaged 628 MMcf per day. Oil production in the first nine months of 2019 averaged 7,723 barrels of oil per day. Pro forma production for the first nine months of 2019 including the operations of Covey Park was 325.7 Bcfe or 1,193 MMcfe per day.

Comstock's average realized natural gas price, including hedging, was $2.39 per Mcf in the first nine months of 2019 ($2.41 including the July hedge receipts of Covey Park). The Company's average realized oil price, including hedging, was $49.44 per barrel in the first nine months of 2019. Oil and gas sales were $512.8 million (including realized hedging gains and losses) in the first nine months of 2019. Adjusted EBITDAX was $378.8 million in the first nine months of 2019. The Company's operating cash flow generated in the first nine months of 2019 (before working capital changes) was $280.4 million.